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Ireland's solvency remains 'fragile'

Mon, Apr 18, 2011, 01:00

Rating agency Fitch said Ireland's solvency remains "fragile" and an improvement in the country's debt situation will depend on economic growth and the Government's fiscal plan.

Ireland's sovereign debt may rise to as high as 116 per cent of gross domestic product in 2013 to 2014, leaving the Government "with much-reduced flexibility to respond to future shocks and crises," Fitch said in a report published today in London.

"Ireland's solvency is fragile and significant threats to an economic recovery and fiscal consolidation remain," it said.

"Its debt dynamics are sensitive to growth and consolidation outcomes, given its high deficit and debt starting points."

The report noted that Ireland was grappling with its deepest recession on record following the collapse of a domestic property bubble, and had committed on March 31st to injecting a further €24 billion into its banks following a third round of stress test on the financial system.

It said this would force the Government to draw down as much as two-thirds of €35 billion bank fund set up under an international rescue package.

"Fitch does not anticipate any further state capital injections to be required," it said. Under a stress scenario, where nominal GDP drops for a fourth year in 2011, state debt would breach 128 per cent of economic output by 2015, "assuming no further policy response," Fitch said.

"Further consolidation measures could well be needed if growth were to underperform," it said.